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Shulman Says IRS ‘Seriously Considering’ New Amnesty

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The U.S. Internal Revenue Service is “seriously considering” a new partial amnesty program for taxpayers who report secret offshore bank accounts, Commissioner Douglas Shulman said today.

Shulman said the IRS may repeat a voluntary disclosure program such as one that drew nearly 15,000 taxpayers between March 2009 and October 2009. They avoided prosecution by declaring accounts and paying fixed penalties. Since then, another 3,000 taxpayers declared accounts and face undetermined penalties.

The IRS began the program amid a crackdown on offshore tax evasion fostered by UBS AG, Switzerland’s largest bank. Over the past year, the IRS has sought to expand its crackdown around the world. Shulman said a new amnesty program would not be as enticing financially.

“Given its success, we are seriously considering another special offshore voluntary disclosure program,” Shulman said today at a tax conference in Washington. “However, there will be some fundamental differences. Taxpayers will not get the same deal as those who came in under the original program.”

Until October 2009, participants avoided prosecution by paying taxes for six years on undeclared income and a 20 percent penalty on those taxes. They also had to pay 20 percent of the highest value of undisclosed accounts over those six years. Without the amnesty, taxpayers face penalties of as much as 75 percent on evaded taxes and 50 percent on undeclared accounts.

Tax lawyers applauded the announcement.


“Criminal tax practitioners are delighted that there will be some certainty in the penalties assessed,” said Lawrence Horn of Sills Cummis & Gross in Newark, New Jersey. “People know they’ll get amnesty from prosecution, but now they’ll also know the civil penalty cost.”

While the first program was a success, “many thousands of additional taxpayers would likely come forward under a new program, returning those taxpayers and billions of dollars to the system to be taxed,” said Mark Matthews of Morgan, Lewis & Bockius LLP in Washington and a former chief of the IRS’s criminal investigation division.

As part of a U.S. crackdown, at least two dozen UBS clients, bankers or advisers have been charged with tax crimes. Zurich-based UBS avoided U.S. prosecution in February 2009 by paying $780 million, turning over the names of U.S. account holders and saying it helped Americans hide assets from the IRS.

The 18,000 taxpayers who made voluntary disclosures had to identify their foreign banks, the names of bankers and advisers, and contact information for those who handled their money.

‘Vast Quantity of Data’

“We have been scouring the vast quantity of data” from voluntary disclosure applicants and other sources, Shulman said.

“This information has already proved invaluable in supplementing and corroborating prior leads, as well as developing new leads, involving numerous banks, advisers and promoters from around the world, including Asia and the Middle East,” Shulman said, according to prepared remarks.

Tax attorney William Sharp said the IRS crackdown is starting to ripple through tax havens.

“It is clear that not only that Swiss financial institutions but all the other offshore financial centers like Luxembourg, Dubai and Singapore are paying attention,” Sharp, of Sharp & Kemm in Tampa, Florida, said.

Matthews said penalties in a voluntary program that approach 50 percent won’t generate many disclosures.

‘Wiped Out’

“When you also consider back taxes, penalty and interest, many of the accounts would be entirely wiped out,” he said. “That would be a more difficult program to sell to clients, many of whom would be fearful of an inability to pay the full penalty.”

Scott Michel, a partner in the Washington office of Caplin & Drysdale who helped dozens of clients make voluntary disclosures in the first initiative, said the new program should acknowledge that many Americans with offshore accounts didn’t intend to violate U.S. tax law and had “technical compliance issues.”

Taxpayers will come forward even with higher penalties if they fear getting caught, said Barbara Kaplan, head of the tax department at the Greenberg Traurig law firm in New York.

“Some will also do it so they can sleep at night,” Kaplan said. “Those who sit on the sideline and sleep fine at night may stay there if they feel there is only a remote possibility that another institution will out them.”

The initial voluntary disclosure program wasn’t open to taxpayers who already were under scrutiny by the IRS.

Shulman said in November that the closed cases under the previous program generated an average of more than $200,000 in revenue for the Treasury.

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